debt

Unfortunately, this is all very difficult to predict due to the fact that I would have been making different decisions if I had less income, starting with the car, and who knows how far the reach would extend from there. I’ve tried my best, though.

As I was driving into work the other morning, I was thinking about my jobs. I’ve been working in the “real world” for over a year now, and have had 2 jobs for most of that time. When I found a new job, my original job said it was ok for me to stay and work afternoons/nights and weekends for a while. I wanted to get rid of my debt fast, so I figured that I may as well give it a swing. I also realized that this was probably the best time for me to do so, as I don’t have children that need to be cared for. It also works well because once I get out of debt, it will be easier for me to build savings (from increased cash flow) and stay out of debt. I also figured that I may not always have as much energy as I do now to work as often as I do.

I began to wonder where I would be if I had only 1 job this entire time. While my expenses would have gone down slightly, it wouldn’t have been much. I’ll assume that my car would still need to be replaced and that every other major thing would hold constant. These numbers will most likely turn out to be quite speculative, as my purchasing and behaviors would have changed if I had less available cash.

Going back to my monthly review in November 2009 on this, the first thing I noticed is that my budget is very, very different now. I pay a lot more for car insurance (here are some car insurance quotes if you need them) and gas, to name 1 thing. The other thing that I noticed is that I was still in my post graduation 6 month grace period for my student loans (It ended in December), so those did not even make the list! There was $4,800+ worth of credit card debt left at that time. I don’t remember what the minimum (combined) monthly payment was for these 3 cards, but I think it was around $200.

After this, my blogging gets fairly thin, but in my next update at the end of February had actually brought my credit cards up to 6,000 total after an adventure in vehicle sales tax. I paid that off right after I charged it, and I was sitting with about 4,000 on credit cards still. Unfortunately, I had taken on a lot more water than I had anticipated. I now had 3 student loans to pay monthly (total: $300) and a car (plus more expensive insurance, total $500). At this point, loans alone were running me about $815 per month. It should be noted that if I only had 1 job at the time, my car purchase would have been much different than it actually was.

I think that I would have limited a car payment to 200/mo, bringing my total monthly debt to 700. With that, there would have been about $400 worth of payments to start my debt snowball with. The way my snowball has been working so far, there has only been 1 month (in 12) where I’ve applied less than 1,000 to my debt. Its usually been closer to 1200 to whatever was the focus of my snowball. Just by that rough estimation, the second job has helped me move 3 times faster than I would have been able to otherwise. Given the hole I was digging out of, this is no small feat, and could mean freedom from debt years earlier.

I’ll be able to start saving more years earlier, and allow compound interest to work in my favor longer.

It’s been worth it to me. Are you willing to sacrifice to slay your debt?

Personal Finance is one of those things that’s different for just about everyone. Sure, some parts can be strikingly similar like saving money and spending less than you earn, but for the most part, it’s a different beast for every person or family. One family may not value things that their friends do, and it will reflect in their spending habits and money management. I’ve been thinking a lot lately about one thing that I did that flew in the face of all the personal finance advice that I have read and seen, and I’d like to go into depth more about why it has worked out well for me.

The decision to buy a car will confront all of us at some point, and if you’re in your 20s like me, it’s probably the most expensive thing that you will buy until you buy a house (excluding that education that we took out loans for). Due to this, there is TONS of advice out there for people who are looking to buy a car, related to how much they should spend, what capabilities they need and whatnot. Most of it is great advice for 95% of the population, and if you follow it, you’ll end up just fine. The biggest spokesperson for some of this advice is a titan of personal finance, a person who (some believe) stands below, but quite close to the big man (or woman) upstairs: Dave Ramsey.

Dave has a lot to say about cars, and for good reason. During the time when Dave was losing all his money, there was 1 thing he felt like he absolutely had to keep, and it wasnt his home. It was his Jaguar. To keep up appearances that people had expected of him, he felt he NEEDED to have the jag, even though it was a huge money pit for him. Dave learned a valuable lesson as the car was (I think) repossessed some time later. Dave is now completely against the buying of a new car for anyone at any time (unless they can pay cash, I’d assume). This is because most vehicles typically lose a large percent of their value after you take it home from the dealer (its around 30% I believe). This, coupled with the american habit of wanting a new car every few years means that you’re borrowing to pay for something that will lose much of it’s value right away and will stay at that lower value until the typical consumer trades it in for a new one, and the process starts over. Dave calls this a “Stupid Tax” , meaning that you only pay the tax if you’re stupid. For 95% of the population, I think Dave is completely right. If they took this advice, they would probably be much better off buying a car that is a year or 2 old.

My issue with this is that it’s a blanket statement, and many of you who make blanket statements know that they are most likely going to be eaten at some point. If you say X always leads to Y, you are begging for someone to prove you wrong. In my case, Dave’s advice wasn’t the most applicable in my situation, and I feel like he left out a few of those things that were present in my situation that are not present in everyone’s situation, and I’ll list them below with a bit of explanation.

Dave Says that you should buy a used car because you’re going to trade it in a few years down the road. What I’m assuming he means by this is that you’re not going to ” drive it until the wheels fall off ” and the car absolutely wont go another mile. Who could blame you, anyway? You could end up driving around a 25 year old car. I was taught that you bought a new car if you could afford one, and you drove it for 15 years or more. My parents have done this for as long as I can remember, and I picked it up from them. If you buy and hold a new car, a new car isnt a bad purchase, it’s just a purchase like any other. You’ll lose a lot of value in the beginning (but it’s only paper value), but if you plan on rolling in the car until you’ve got to take it to the scrap pile yourself, who cares if it loses some value 30 minutes after you bought it?

It’s also common knowledge that your car will depreciate after you drive it off the lot, and you’ll be upside down (owe more than you can sell the car for) for the next year or so. This is true for most cars but not for trucks. Trucks are (no-no-)notorious for holding their value years down the road. When I was test driving vehicles, I test drove a truck that was 3 model years old (it was a 2007) that was fairly nice with some extras, but nothing terribly fancy. They were trying to sell it for about 3500 less than what they wanted for that same truck that was brand new. Curious to see how my truck was holding it’s value, I checked it on kbb.com recently. I don’t recall my exact sales price (but it was less than $25,000) but the value of my truck currently is $22,000 and the total cost of my loan was somewhere in the mid to high 23’s. As it sits right now, If I sold the truck, I could make approximately 3500 on it, because I’ve been paying a small bit extra each month, and because the value didn’t tank when I drove it home.

My future. I went to the readers of Debt Free Adventure and got advice similar to what I’ve listed above. It was all great advice, it just did not take into account one of the most important things about money: My (or your) personal future goals. In the future, I would like to do a few things, most of which involve needing a truck or at the very least, something with high ground clearance and 4 wheel drive. Where I live, 4 wheel drive is also almost a requirement due to adverse weather. Along with possibly using this truck for a business that I’d like to create, I’d also like to purchase some land and work it. I’m thinking of raising some sort of animals or growing alfalfa, but I have not really decided. This is something I really want with my life and I know it’s in the future, so I figured why not get a truck, drive it around nice and new for a while, then when I purchased land and started a business, turn it into a work truck. Whenever I see one of those really old beat up trucks on the road, I tell myself that soon my truck will be beat up and super awesome like the one I’m looking at.

The way that I see it, I made a pretty good decision and was able to balance my needs and wants and fly in the face of some sound financial principles. Even though this is still debt and I still don’t like it, It sure beats waking up in the middle of the night wondering if my car will start so that I can get to work later that morning.

So readers, do you think I’m in an alright spot considering I broke a cardnial rule of Personal Finance?

If you were in a similar situation where you were going against most of the PF literature that you have read, would you be able to go through with it? Admittedly, mine was easier because ‘normal’ people buy new cars, and typically people who buy used ones get looked at like they’ve got 3 heads. But the question remains, Could you still go it alone?

Here is where I spent/saved in June of 2010. For most of May, I was driving a rental car, so my gas prices have gone back up this month, which is unfortunate. I also have paid off the last of my credit card debt, finally. I used part of my snowball to pay off my credit card debt, and I’m going to send the remainder to my smallest student loan. My goal is to have that loan gone by the end of the year. Once that’s gone, I’ll have some decisions to make about what to tackle next, and I’m sure I’ll be asking for some help.

Credit Card Debt:

I cancelled two of my cards last month after I paid them off. I’m pretty happy about that! Right now I have 1 card that I think I’m going to keep, as it is pretty good with rewards miles. I haven’t decided yet though.

Southwest Card: $ 0 ! My last credit card (tear, not). I’m so sorry that we are going to have to break up, but right now, I think it’s for the best. Do you know how much money it will save me?

Student Loans:

This is by far my largest liability at this point — It’s unsecured and it’s just lame run of the mill debt. I’ve got 3 loans from 3 different banks (way to go, feds!). These loans came from 6 years of school, so I got out pretty good.

Nelnet Student Loan $ 3,041 ($32) This normal payment is $50, which I have been paying. Apparently, of the $50 I pay, $18 goes to interest. This is my next target. Get ready to part ways, nelnet.

Direct Loan $ 7,109($359). The regular payment on this is 92, and I paid that, but my parents send some money occasionally to this loan. It’s a really, really big help. This loan started out at 12k I believe.

Great Lakes Loan $ 12,944($86) Just paid the standard payment of $150, but because of interest, the amount it went down was much less than that.

Truck Debt:

This is for my vehicle. I had already started trying to become debt free when I bought this, so I was quite torn as to wether or not to take on new debt while I was trying to eliminate other debt. If you want to read more about it, check here, here and here. Despite most of the advice I heard, I went ahead and took out a loan on this. I’m still thinking I made the right move. Either way, here is the status.

Ford Credit: $ 19,588 ($325): This one is just holding steady for now. I pay more than the minimum each month, and I call every month to make sure that they apply my extra to the principal.

Total Debt Level: $42,682 ($793) Another month where this number dropped. I’m fine with that, although it’s not dropping as much/as fast as I’d like. I’m hoping I can get another side hustle going soon. More importantly, I have spent less than I earned all year! I’m hoping to continue this all year, and for the rest of my life!photo credit: Daquella manera

Boy, we’ve known each other for quite a while, but I’ve been feeling a bit queasy about our relationship for the past 3 or so years, and I wasn’t sure how to break it to you at first. I decided that the best way for us to separate would be through this letter, which I will write and send to you, and then never look back. There will be no more “emergencies” or “fun things I can’t miss out on” funded by you. I’m sorry, but it has to be this way.

Boy, we have known each other for almost 8 years, can you believe it?! Me neither. It sure hasn’t seemed like that long. Do you remember back when we had just met each other? I wasn’t even in College yet, but you and I were growing close. I would just charge a fuel purchase here or there to build our relationship, and then I’d get you back at the end of the month. I always thought you were cool, because you never really seemed to mind that I paid you later. You didn’t always seem too happy that I paid you back in full though, but I never seemed to mind. I figured, that’s odd, but oh well.

Remember that time we got to College, and we made so many other friends? There was the card with my school logo on it that gave me a sweet t-shirt, the card with the airline miles, and countless others. They were all your friends to begin with, but soon the became our friends. Some of them were some pretty cool cats, but some were pretty lame. I mean they wanted me to pay to hang out with them every year, plus they didn’t give me any freebies? Sorry I was so rude to them, but I think it was for the best. Even though I never got along with all your friends, you still let me hang out, which I thought was cool. I really appreciated that, man.

Little did I know that you were one of those true friends I kept reading about in books and stuff. Do you remember that time I had that financial emergency? I didn’t think you did, but remember how you were there to spot me the cash, and said it was cool? You were even nice enough to set up a payment plan for me because I had a job and you knew I was good for it. That was really, really sweet. You were there to spot me then and many other times in the coming months. Not only were you there for the big emergencies, but the small not-so-much emergencies too, like going out to eat with my friends or hitting up the bar to hang out. You were a pretty good friend to me then, man.

We had some good times, too. First, we bought a new winter coat and some snowboarding gear in the winter. Then, do you remember when we went snowboarding in Lake Tahoe, NV for that spring? It was a really awesome trip that you lent me the money for 89% of. That new computer I got a year later? That was you too. It felt great, having all that new stuff and doing all those things with you. After a while though, our relationship became strained. You started to get testy when giving me money, so I figured it was time to re-examine my priorities and think about what I was doing.

(Un)fortunately, I’ve been feeling our relationship has strained a bit, you know? It’s just not the same as it used to be. We’ve both grown up and bit and changed into different people, and our relationship has been neglected because of it. I don’t know if you even noticed or not, but I haven’t even hung out with you in almost 2 years! Can you believe that? All I’ve been doing is paying you back, dawg. While it’s been no fun for me, it doesn’t really seem like you care all that much.

I see you out and about with a much younger kid, much like I was when we met, and the two of you are having a grand old time. I tried to talk to the kid about you, but you wouldn’t let me near him. I just figured that if you and I were good friends, and you and him were good friends, then him and I were practically destined to be soul mates! I thought that you were acting kinda rude, but I just sighed and let you and that young kid hang out. One day (hopefully) he’ll grow out of your guys’ relationship, but for now, I hope he’s having fun.

Either way, credit cards, I think it’s time that you and I parted ways — no hard feelings or anything, but a clean break would be nice. I know you’ll try & call me, send me letters in the mail (who does that anymore, anyway?) but my mind is made up.

Sincerely,

Jeff

ps: If you’re reading this, it means that I have (or will in 48 hours) sent the final payment to my final credit card with a balance on it, zeroing out my balance over all cards for the first time in longer than I care to remember.